RBI to conduct Rs 12,000 crore of open market operation purchase

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Published: February 26, 2016 1:08:15 AM

The Reserve Bank of India (RBI) on Thursday announced an open market operation (OMO) purchase of government securities worth Rs 2,000 crore on March 3

rbiThe RBI conducts OMO purchases in order to infuse liquidity into the system whenever there is a deficiency. (Reuters)

The Reserve Bank of India (RBI) on Thursday announced an open market operation (OMO) purchase of government securities worth Rs 2,000 crore on March 3, reports fe Bureau in Mumbai.

The RBI conducts OMO purchases in order to infuse liquidity into the system whenever there is a deficiency, while it conducts OMO sales to suck excess liquidity from the system. OMOs are also intended to keep the short-term interest rates close to the policy rate.

“The Reserve Bank will continuously monitor the evolving liquidity conditions and announce such measures as considered necessary,” the central bank added.

A Bank of America-Merrill Lynch report stated that yields are rising, despite rate cuts by the RBI, because delays in RBI OMOs have generated excess supply in the G-sec market.

The 7.59% 2026 benchmark government bond yield closed at 7.86% on Thursday, its highest level since it was introduced in January this year.

The old benchmark bond yield closed at 8.08%. “We expect the RBI to OMO/buyback Rs200 billion by March as it has supplied only US $14.4bn of the US$30bn of permanent liquidity we estimate needed for FY16,” the BofA-ML report stated.

Gr4

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